If you are in any way related to the world of real estate investing, you must have heard a million times the expression “home appraisal”. This is one of the key terms in the real estate business and one that every real estate investor should be familiar with. To help you get the right terminology for your real estate investment endeavor, let’s have a look at what a home appraisal is, when it is done, how it is performed and by whom, and when you need to get one.
What is home appraisal?
To begin with, let’s first define what “home appraisal” means. A home appraisal – or a house appraisal – is a process in which you receive a monetary valuation of a real estate property. This is different from a home inspection, which outlines the condition of the major features of a real estate property including the structure, the roof, the foundation, the electrical work, the plumbing, the heating and cooling systems, the water and sewage networks, the fire and other safety issues, the sidewalks, etc. Home inspection is usually performed when selling a home or an investment property and is done by a qualified home inspector. While the home inspection will give a property seller and a property buyer a good idea of the condition of a real estate property, it will not say anything about the fair market value of the property. That’s why you need a home appraisal, which will provide you with the fair market value of the real estate property under question, meaning that you will know exactly how much your investment property is worth in the local housing market.
Related: What You Need to Know About Home Appraisal
Who performs home appraisal?
Since the aim of a home appraisal is to provide a real estate investor – or a home seller or buyer – with the exact value of a certain real estate property in a given market, it must be done by a professional, by someone who is well aware of the local properties and prices. Thus, a home appraisal is performed by one of two real estate professionals: a professional property appraiser or a real estate agent. A professional property appraiser is used when the home appraisal will be used for official purposes, while a real estate agent can get the job done when the aim is to set the right selling price for a real estate property for sale.
When do you get home appraisal?
Home appraisal is required in a number of cases. First and foremost, a home appraisal is performed when a property is about to be sold in order to determine the fair market value of this real estate asset. This is the best and most accurate way to know how much you as a real estate investor about to sell one of his/her rental properties should ask for this particular property. In this case, you can easily use your real estate agent to do the home appraisal as this real estate professional has the necessary knowledge and skills to help you out. This is part of his/her duties in representing you in the home sale.
Second, a home appraisal needs to be done for tax purposes. In order to pay property taxes, it is important to know how much exactly your investment property is worth in the housing market right at this time. So a time when you need to perform a formal home appraisal is to determine the property’s tax-assessed value.
Related: Everything Real Estate Investors Should Know About Tax Season
Last but not least, you will also need to hire a professional property appraiser to get a home appraisal when you want to take a mortgage loan to buy an investment property or to refinance an existing mortgage. That’s another occasion when you have to know exactly how much your real estate property is worth.
Why do you need home appraisal?
Well, the simple answer to this real estate question is: To know the fair market value of a real estate property, i.e., to know how much exactly your real estate investment is worth under the current market conditions. But there are multiple ways in which you can answer this question. You need a house appraisal in order to know for how much you can sell one of your rental properties or for how much it makes sense to buy a new investment property. You also need to go through this process to follow the law and pay property tax. In addition, you have to engage in a home appraisal to be eligible for a mortgage.
The most important feature of a house appraisal is that it is a formal valuation method in the real estate business. However, if you are about to do it just to have an idea of how much an investment property is worth without having a formal price, you can easily replace it with your own real estate market analysis and investment property analysis. In this way you will save a lot by not having to hire a professional property appraiser and pay fees. While real estate market analysis might sound taunting, especially to an inexperienced real estate investor, you can make the process much easier and less time consuming my buying a good rental property calculator, like Mashvisor’s. It will not only tell you what the property price should be but also estimate how much rental income you can make from any investment property in any US city and neighborhood, what your profitability will be in terms of CoC return and cap rate, and what occupancy rate you can expect. Furthermore, all these metrics will be divided for both traditional and Airbnb rental strategy. To make a long story short, an investment property calculator is one of the first real estate investing tools to get a hold of.
Related: Buying Rental Property Calculator: The First Thing to Do in Real Estate Investing
Home appraisal is just one of those things that you will inevitably come across in real estate investing, and thus you better learn quickly what it is and when it is needed. Remember though that when you don’t need a formal valuation of a real estate property, you can easily replace the house appraisal with calculations from Mashvisor’s investment property calculator at nearly no cost.